Special announcement: COVID-19
Market update 4 - 2020 vision
The investment environment inflicted upon the global economy by coronavirus (COVID-19) has changed. While the medical emergency continues apace, and the impacts of social isolation on individuals and businesses remain, it appears that markets may have found the bottom and will rise from here, well before COVID-19’s peak infection is reached.
The bazooka
The New Zealand Government announced the largest stimulus packages in New Zealand’s history. In the United States, the Senate approved a bazooka – the largest economic stimulus package in modern history. The US$2.2 trillion (NZ$3.7 trillion) package will give American families and businesses a financial shield against the ravages of COVID-19.
To put US$2.2 trillion into context, at 10% of United States GDP, it is more than twice what the 2008 bailout package was worth. The 1948 Marshall Plan, where the United States bailed out Europe, was US$144 billion. This United States’ stimulus package dwarfs even a world war level of investment.
The stimulus packages announced throughout the world are good for both citizens affected by COVID-19 and for financial markets. The United States was slow to come to the party given their ideology of not interfering in free markets. However, the extent of the share market fall has motivated the most powerful economy in the world to act.
2020: The perfect market entry point
We all wish we could have perfect foresight when investing in financial markets. If we did, we could confidently pick the bottom of the share market during this current bout of volatility. However, without some sort of crystal ball, we are likely to get it wrong. Instead, we ask, what year is the best year to buy shares?
Portfolio Positioning
In the Investment Report | 2H 2019 published in September last year, we were cautious, given the extent of the ten-year share market rise. We became more defensively positioned.
In 2020, irrespective of the short-term economic effects of COVID-19 and acknowledging the horrendous burden on hospitals, medical staff and those of us infected by the virus, most companies in New Zealand, the United States and beyond will survive.
There is no better time to buy shares than now. Share markets are priced at levels not seen since the global financial crisis. Given low interest rates, coupled with the economic stimulus packages, we expect a three to four-fold gain in shares over the next five years, just as they did post-2009 and following the tech crash in 2000.
We are now fully invested. We wrote on 20 March 2020 | COVID-19 Market update 3 that we were entering the third phase of our investment strategy and are focused on outperforming as share markets rebound.
During the transition from mitigating the downside to participating in a rebounding market, we gave up some of our returns. However, we expect our systematic strategy will increase our share market exposure to leapfrog market returns, and our competitors, as the market increases. As we did when the market declined, now it is time to ensure we outperform as markets rise.
We retain options to mitigate further bad news. Volatility will continue, however, as guardians of your retirement savings, if we were to wait for a vaccine, the market may have already increased beyond its previous highs.
For our clients and advisers
As we embark on our first week of lockdown in New Zealand, NZ Funds wishes all our clients, advisers, and their families the very best. Be kind. Stay home. Stay safe. Save lives.
The bazooka
The New Zealand Government announced the largest stimulus packages in New Zealand’s history. In the United States, the Senate approved a bazooka – the largest economic stimulus package in modern history. The US$2.2 trillion (NZ$3.7 trillion) package will give American families and businesses a financial shield against the ravages of COVID-19.
To put US$2.2 trillion into context, at 10% of United States GDP, it is more than twice what the 2008 bailout package was worth. The 1948 Marshall Plan, where the United States bailed out Europe, was US$144 billion. This United States’ stimulus package dwarfs even a world war level of investment.
The stimulus packages announced throughout the world are good for both citizens affected by COVID-19 and for financial markets. The United States was slow to come to the party given their ideology of not interfering in free markets. However, the extent of the share market fall has motivated the most powerful economy in the world to act.
2020: The perfect market entry point
We all wish we could have perfect foresight when investing in financial markets. If we did, we could confidently pick the bottom of the share market during this current bout of volatility. However, without some sort of crystal ball, we are likely to get it wrong. Instead, we ask, what year is the best year to buy shares?
Portfolio Positioning
In the Investment Report | 2H 2019 published in September last year, we were cautious, given the extent of the ten-year share market rise. We became more defensively positioned.
In 2020, irrespective of the short-term economic effects of COVID-19 and acknowledging the horrendous burden on hospitals, medical staff and those of us infected by the virus, most companies in New Zealand, the United States and beyond will survive.
There is no better time to buy shares than now. Share markets are priced at levels not seen since the global financial crisis. Given low interest rates, coupled with the economic stimulus packages, we expect a three to four-fold gain in shares over the next five years, just as they did post-2009 and following the tech crash in 2000.
We are now fully invested. We wrote on 20 March 2020 | COVID-19 Market update 3 that we were entering the third phase of our investment strategy and are focused on outperforming as share markets rebound.
During the transition from mitigating the downside to participating in a rebounding market, we gave up some of our returns. However, we expect our systematic strategy will increase our share market exposure to leapfrog market returns, and our competitors, as the market increases. As we did when the market declined, now it is time to ensure we outperform as markets rise.
We retain options to mitigate further bad news. Volatility will continue, however, as guardians of your retirement savings, if we were to wait for a vaccine, the market may have already increased beyond its previous highs.
For our clients and advisers
As we embark on our first week of lockdown in New Zealand, NZ Funds wishes all our clients, advisers, and their families the very best. Be kind. Stay home. Stay safe. Save lives.
Source: FactSet, UBS.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest PDS for the Scheme is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest PDS for the Scheme is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
***
James Grigor is Chief Investment Officer for New Zealand Funds Management Limited (NZ Funds) and a member of the NZ Funds KiwiSaver Scheme. James' comments are of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
***
